Vietnam Sourcing: Footwear 2018 Sector highlights

A key factor encouraging the expansion of the footwear industry is the country's existing FTAs as well as those in process.

One of the concerns of the industry is a possible slowdown in demand due to the US-China trade tensions.

Price competition remains a major challenge.

Vietnam exported $6.2 billion worth of footwear in the first five months of 2018.

The US accounted for 37 percent of the export value.

The other top importers were China, Germany, Belgium and Japan./li>

Genuine and synthetic leather are common materials across categories.

Localization rate is expected to reach 55 percent in 2018.

Prices are expected to remain stable in the next six months.

Vietnam Sourcing: Footwear 2018 Suppliers & products

Vietnam Sourcing: Footwear 2018

• Casual shoes • Formal shoes • Sports shoes • Children’s shoes

Our team has curated a collection of top-selling products from footwear suppliers across Vietnam.

A number of these suppliers have websites on GlobalSources.com with full company details, product images with specifications, manufacturing capability and complete contact information. Click on the company names or product images to view their full profiles and product offerings on GlobalSources.com.

Ho Chi Minh City and Hanoi province are among the main production centers.

Vietnam’s footwear industry exported more than 1 billion pairs in 2017, making it the second largest exporter of footwear in the world after China, The Hanoitimes reported April 5, 2018. The products were valued at nearly $14.7 billion, an increase of about 13 percent from 2016.

Footwear exports in the first five months of 2018 indicate that overseas sales will remain on an upward trend during the year. Preliminary statistics from Vietnam’s General Department of Customs show that the country sent abroad $6.2 billion worth of products, up more than 10 percent from the same period in 2017.

The US is the largest single-country importer of footwear from Vietnam. In the five-month period ending May 2018, shoes sent to the market amounted to $2.3 billion, or 37 percent of the total export value. This represents a year-over-year increase of approximately 16 percent.

China, another key market, accounted for 9 percent of the export value. Germany, Belgium and Japan were the other top importers.

Models with textile uppers are the top exports, followed by those with leather uppers, based on the latest statistics from the DESA/UNSD, United Nations Comtrade database.

Trade tensions between China and the US present Vietnam’s footwear industry with opportunities and challenges. On one hand is the likelihood of foreign investment and exports rising further as companies operating in China seek alternative production or sourcing centers. One effect of this, however, would be increased competition for workers, which will push up labor-related expenses, The Voice of Vietnam reported July 20, 2018.

Another concern of footwear suppliers is a possible slowdown in demand. Even if footwear does not become subject to additional or higher tariffs, consumers in the two major markets may cut back on shoes and other discretionary purchases as prices of essentials go up due to the tariffs, according to The Voice of Vietnam report, citing Diep Thanh Kiet, chairman of the Vietnam Leather, Footwear and Handbag Association.

Competitive advantages

Vietnam’s existing free trade agreements (FTAs) and deals in process are among the factors encouraging expansion of the footwear sector, as these facilitate exports of products and the importation of inputs and machinery.

The EU-Vietnam FTA (EVFTA), which is expected to be ratified in 2018, is anticipated to enhance the price competitiveness of made-in-Vietnam footwear. Under this agreement, the tax on sports shoes will be slashed to zero immediately after it takes effect. The tax on leather footwear will be reduced to zero gradually, Vietnam Economic News reported Jan. 3, 2018.

Compared with China, Thailand and several other countries in Asia, Vietnam also has an advantage in terms of labor cost. Monthly minimum wages in the country’s regions range from 2,760,000 Vietnamese dong ($118.39) to 3,980,000 dong ($170.72) per month.

Workers in the Vietnamese footwear industry also have better job skills than those in emerging markets such as Cambodia, Bangladesh, Ethiopia, Myanmar.

Vietnam had over 54.4 million people aged 15 years or older in 2016, according to preliminary data posted on the website of the country’s General Statistics Office. Literacy rate for this group was 95 percent.

In 2017, the country had about 56.4 million people aged 15 years or older, according to data extracted from the World Bank. Literacy rate was at 98.5 percent, according tobased data from Vietnam the Ministry of Education and Training.

Challenges

Price competition remains a major challenge to Vietnam’s footwear industry, especially amid rising costs. Myanmar and Bangladesh are particularly tough rivals since these also have low labor costs and benefit from the Generalized System of Preferences (GSP).

Further, while still relatively low compared with those in China and several other Asian countries, minimum wages in Vietnam are on an upward trend. Regional rates in 2018 are more than 6 percent compared with 2017 levels. Increases in minimum wages also mean a rise in related benefits.

Compliance with social responsibility and environmental regulations such as ISO 14000 and SA 8000, in addition to product-specific guidelines and the requirements to be able to avail of reduced taxes under FTAs, is also pushing up costs.

Another challenge facing the industry is raising domestic content. To take advantage of the opportunities from FTAs, footwear manufacturers need to meet each agreement’s rules of origin. The EVFTA, for instance, requires that for products to obtain the preferred tariff, it should be made of materials “wholly obtained” from Vietnam, or from inputs sourced elsewhere but have undergone sufficient “working or processing” in the country.

The Ministry of Industry and Trade noted that the localization rate of Vietnam’s footwear sector is at 50 percent, Vietnam Economic Times reported June 15, 2018. The Leather, Footwear and Handbag Association (LEFASO) expects the rate of the leather and footwear industry to rise to 55 percent in 2018. The association intends to participate in “relevant policy making” and encourage domestic and foreign investment in support industries, The Hanoitimes reported Jan. 14, 2018.

Another challenge for the industry is how to raise labor productivity. Citing “experts,” The Hanoitimes noted that domestic footwear suppliers have a labor productivity of four to six pairs per day per person. In contrast, those of foreign-invested companies range from 16 to 18 pairs.

Among the strategies that LEFASO has put forth to boost the industry’s competitiveness is to enhance workers’ skills and adopt “modern” technology and management systems. This requires a large amount of capital, however, something that many suppliers do not have. Those investing in automation are mainly large companies.

Financial constraints, leading to inability to invest in capacity upgrades, also limit investment in R&D and marketing initiatives that can raise the added value of footwear from Vietnam is also affecting the sector. Rising costs, especially labor-related expenses, further limit funds for investment and increase the competitiveness of suppliers in the midrange and high-value segments.

Industry composition

Financial constraints, leading to inability to invest in capacity upgrades, also limit investment in R&D and marketing initiatives that can raise the added value of footwear from Vietnam is also affecting the sector. Rising costs, especially labor-related expenses, further limit funds for investment and increase the competitiveness of suppliers in the midrange and high-value segments.

Small footwear manufacturers in Vietnam have up to 200 workers. These typically produce about 57,000 pairs monthly and generate less than $1.3 million in annual export sales.

Midsize companies have 200 to 500 workers. These suppliers can usually manufacture up to 570,000 pairs each month. Revenue from products sent abroad can range from $3 million to $5.5 million yearly.

Makers with larger operations can post over $5.5 million in annual export sales. Several of these are foreign-invested companies.

In the north, most footwear makers are located in Hanoi and the nearby provinces of Thanh Hoa, Hai Phong, Hai Duong, Ninh Binh and Thai Binh. Ho Chi Minh City and the provinces of Binh Duong and Dong Nai are the centers of production in the south.

Supplier locations map

The highlighted areas on the map show the locations of the Vietnam footwear suppliers included in the database gathered by our consultants.

Vietnam Sourcing: Footwear 2018 Product features

Vietnam Sourcing: Footwear 2018

• Casual shoes • Formal shoes • Sports shoes • Children’s shoes

This section offers information on how trends in materials, design and manufacturing are impacting prices offered by Vietnam footwear suppliers.

Buyers can also learn more about the materials used and the common price ranges of certain designs.

Products for export typically comply with REACH and other internationally recognized guidelines.

Footwear prices depend mainly on materials used and the complexity of the design.

Raw materials account for over 60 percent of production expenses.

Prices are expected to remain stable in the next six months.

Materials & designs

Genuine and synthetic leather are the most common uppers and soles. For the former, cowhide and goatskin are the common options. Synthetic leather is usually made from PU or PVC. Cotton canvas is also a popular material for the uppers, especially those of casual and sports shoes.

Besides leather, other materials for the insoles are EVA, PU and PVC. Outsoles are usually made of EVA, TPR or rubber.

Importation of raw materials is common. Localization rate in 2017 was 50 percent, The Hanoitimes reported May 31, 2018, citing the Vietnam Leather, Footwear and Handbag Association (LEFASO). This is expected to go up to 55 percent in 2018.

China, Italy, India and South Korea are among the main sources for leather. PU and PVC are mostly from China. Cotton canvas and EVA can be procured from the cities of Hanoi and Ho Chi Minh, and Binh Duong and Dong Nai provinces, but some suppliers also import from mainland China or Taiwan.

OEM orders still account for the majority of footwear exports, but there are companies engaged in ODM and OBM production. In terms of design, the trend for stylish, comfortable footwear that can be worn on various occasions is going strong.

In men’s footwear, lace-up shoes made of genuine or synthetic leather in traditional black or brown remain on trend since these can typically be worn with casual and business attires. For women, low- and mid-heeled pumps and slip-ons are a popular choice.

Sneakers in breathable materials and featuring anti-slip and anti-skid properties remain a best-seller, with current fashion trends pairing these with pants, skirts and dresses.

Manufacturing & QC

Shoe production in Vietnam is generally semi-mechanized, involving both manual processes and the use of automated machinery. Most production processes are done in-house, from the preparation of the materials, to sewing, assembly and packaging. Some footwear suppliers subcontract the production of uppers, which tends to be labor-intensive. Others outsource the production of outsoles to companies that specialize in the line.

Footwear making consist of four stages with the entire production process lasting between six and eight weeks. The key steps are clicking or cutting; closing or machining; lasting; and finishing.

Materials for the uppers are cut to specifications using industrial scissors or knives, and then assembled with the use of sewing machines. In lasting, the uppers are placed on a foot-shaped mechanism and attached to the insoles and other shoe components. The finishing stage involves trimming, buffing, staining and waxing. Details such as the laces, logo and tags are attached to completed shoes before packaging.

Footwear suppliers usually have seven to 10 QC inspectors to check the neatness and consistency of the stitches, seam strength, accuracy of the colors and other factors. Footwear manufactured in Vietnam are primarily for export, and therefore typically follows internationally recognized guidelines such as the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and the EU’s Registration, Evaluation and Authorisation of Chemicals (REACH). Many companies follow ISO 9001 guidelines. Some are also certified compliant with ISO 14001 and SA 8000 standards.

Pricing

Footwear prices are based primarily on the materials, which can account for over 60 percent of manufacturing expenses. The intricacy of the design is also a major factor due to the amount of labor involved.

Models that use genuine leather such as cowhide and goatskin are generally more expensive than those employing textile and synthetic leather.

Footwear prices are expected to remain the same in the next six months.

Price guide

Price guide: Women's slip-ons

Less than $15Ballet flats or lace-up shoes; canvas or PU uppers; PU or jute insoles; rubber or TPR outsoles.